Question

I need help with this question. What signals do you think a public company sends to the markets and it's existing investor base when it has a secondary stock offering? How can a company best manage the process and what mitigation exists?

Answer 1

Companies generally go for secondary stock offering for two reasons; first for expansion or exploring growth opportunities and second for survival of its business or companies badly needed some fund. When company goes for a secondary stock offering, it uses to dilute the proportion of shareholding of its existing investors because of more number of shares outstanding.

For a public company market signals are very important therefore companies try their best to make it as positive as possible by selecting right time and strategy to give positive signals to the market. A company can best manage the process by giving a positive signal that company has solid expansion plan for its future and in long term this strategy is going to benefit its shareholders by increasing their share’s value and this way it can mitigate the negative signals in the market.